2024-04

Preparing for M&A and EXIT

Business Growth Series: Conversation with Guy Wilmot , partner at Russell-Cooke, a legal 500 UK practice.

I recently had the opportunity to engage in a discussion with Guy Wilmot , where we discussed the intricate challenges that businesses encounter when navigating mergers and acquisitions (M&A) and exit strategies. Our conversation shed light on the key difficulties faced by business leaders in these complex processes and we explored actionable steps to better prepare.

1. Financial Policies

Having clear financial policies especially relating to revenue and revenue recognition is essential ( see my note at the bottom of this article explaining this finance concept). Revenue recognition is an accounting principle that impacts reported performance and therefore the valuation of a business. There are several methods and timing considerations for recognising revenue depending on the industry, business model, contractual obligations, geographical location and accounting standards used (UK GAAP, US GAAP, IFRS..).

2. Employee Share Options and Incentives Schemes

Sellers, often, realise too late that buyers are interested, not only in them, but also in their team. If staff incentives are not addressed early enough, or if the paperwork is incomplete, it can result in a heavy tax burden.

3. Paperwork

 It's important for businesses to ensure all paperwork is in order. For instance, if you've engaged self-employed contractors who've contributed intellectual property (IP) such as designing a logo, writing code, or creating a website without a contract, it can pose problems for the buyer. Typically, unless stated otherwise in a contract, contractors retain ownership of the IP they've created.

Businesses, particularly those experiencing rapid growth, often neglect to dedicate enough time to organising the administrative side of their operations. This can lead to challenges, with financial directors having to juggle multiple roles, including CFO, COO, IT, HR, and legal adviser responsibilities.

What's Next:

Amidst the challenges of growing a business, it is important to recognise that engaging the right advisor is essential for the following reasons:

  • Expert guidance and expertise : They can offer valuable guidance on various aspects, including financial management, legal compliance, strategic planning, and operational efficiency. Their insights and ability to bridge the knowledge gap can help you make informed decisions and prevent errors, ultimately leading to better business outcomes.
  • Risk Management: Business advisors can assist in identifying and mitigating risks that your business may face. Whether it's navigating complex regulatory requirements, managing financial risks, or addressing potential legal issues, having the right advisor by your side can help safeguard your business against unforeseen challenges.
  • Strategic Planning: Advisors can play a key role in strategic planning and goal-setting for your business. They can help you develop long-term strategies, assess market opportunities, and adapt to changing business environments. With their help, you can develop a clear path for growth or transformation while minimising uncertainties.
  • Time and Efficiency:By delegating certain tasks and responsibilities to a trusted advisor, you can free up your time to focus on core business activities and strategic priorities. This can enhance productivity and efficiency, enabling you to achieve your business objectives more effectively.

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